William J. Blake: An American Looks at Karl Marx
Lenin begins his study of modern tendencies and their economic meaning with a summary of capitalist concentration, and mostly of centralization leading to monopoly forms. By 1909, a quarter of a century after the death of the prophesying Marx, in the United States about 1 per cent of all enterprises hired 30 per cent of the workers and produced about 44 per cent of the total output. There were only 3,000 companies in this 1 per cent. The population of the United States was about 104 millions.
In Germany, not only was concentration approaching the American level but it was more effective, since the German large capitalists had formed “cartels” or trade groupings for fixing prices and limiting competition, in many of the decisive industries.
In the United States, this development took the form of “trusts,” that is, of single corporations which, either in their own names or those of subsidiary companies, dominated single industries, such as the Standard Oil Company.
The capitals of these companies were something that had never been approached. Their budgets were far larger than those of minor governments. The number of their employees exceeded all but the three largest armies in the world.
Great areas of production were closed to serious competition. A new adaptation of Marxist theory was made by Lenin to suit Marx’s own prophecy. Monopoly became a basis of economic life; it transformed capitalism into imperialism.
Lenin related this intense form of concentrated capital to the need for raw materials, to industry’s union with banking (which now goes far beyond mere money lending and credit availability, although still retaining these), and, lastly, to the part colonial conquest had in furthering monopoly growth and the reciprocal effect of monopoly structure on colonial policy. The latter feature was subsidiary in the United States, but primary in Britain, France, and Germany. Other capitalist states like Belgium and Holland were identical with Britain in policy and needs;1 others mirrored these policies, but more dimly, such as Italy, Austria, and Russia. Some states that profited by this development without a struggle, such as Switzerland, were converted into a fusion of a café and a safe-deposit vault.
Since Lenin wrote, concentration has gone much further. American concerns that produced a million dollars in products or over per year accounted for 63 per cent of production by 1921. It is more than that today.
The Universality of Large Public Companies
These large companies, with rare exceptions, are public companies, that is, anyone is free to buy a share in them. Thus the United States Steel Corporation and General Motors, and above all the American Telephone and Telegraph Company have a small army of shareholders. These shares, or parts in the unpledged capital of the company they represent, are bought and sold daily on stock exchanges. In addition to this, these companies borrow sums of money, covenanting to return the principal at a given date and to pay a definite interest for a certain time, and they agree to certain losses and penalties if they default. This debt is divided into small parts, called bonds, and is open to all purchasers, and these bonds are daily traded in.
The shares, as a rule, have the unlimited right to a part of the profits of the company; the bonds, except for oddities, have no such right, since they enjoy preference as to interest payments. This is a very crude outline of the marvelous and variegated foliage of the securities jungle, but it is enough for Marxian theory. The trimmings and exceptions would affect no analysis.
Even in the best developed, ripest capitalism of the world, that of the British Isles, from their capitalization at the time of the death of Karl Marx in 1883, to 1930, the public capital of companies had risen from about 2½ billion dollars to 28 billions. Population had risen merely from 37 to 47 millions.
The public corporation makes it easy to engage great capitals because nobody’s individual capital is wholly involved, the risk is distributed. Also the stock company has a limited liability, so that even a gross error on its part can lead to a known loss, at the worst. Another aspect of the public company is that it is no longer limited by its own capital or the loans of banks on a short-term basis but can permanently call on the savings of millions of people.2 Once the share capital is bought, the money is gone for good, socially speaking, for each shareholder can get it back only by getting somebody else’s money. But that much money is in the capital. By facilitating business and limiting loss, the corporation is enabled to engage in enormous operations, to employ hundreds of thousands. It is a great aid in concentration: in fact, without the corporation form the inevitable expansion of capital would be hampered seriously. Even for an economic tendency, it is necessary to seek embodiment in a proper juridical form.
How Companies Are Governed
Since hundreds of thousands of shareholders cannot really control a company, these are governed by boards of directors, nominally re-elected democratically by the share capital (each share one vote) at general meetings. So valueless is this privilege that, in fact, shares with voting privileges usually do not sell for more than those without them. Actually the management sends out proxies, or delegated rights to vote, and unless some extremely wealthy group challenges this, it insures continuity of the group already installed in power. Besides, this authority is easily diluted. Suppose we have the following arrangement:
| Company A has: | $50,000,000 | in bonds (these do not vote) |
| $25,000,000 | in preferred stock (these do not vote); |
|
| $15,000,000 | in non-voting stock | |
| $10,000,000 | in voting stock |
The corporation can be controlled with 51 per cent of the last item; that is, with $5,100,000, $100,000,000 is controlled. More than that, suppose that 51 per cent of the 51 per cent is owned by the Company A Holding Company, and 51 per cent of that is owned by the Company A Investors’ Associates, then about $1,300,000 controls the $100,000,000. And if the two holding companies have a basis of capitalization like the Company A they control, then the whole of the $100,000,000 can be controlled by $13,000, in theory.
And, in some of the public utility holding companies in America, things nearly as exaggerated have taken place. Control, then, is not necessarily related to size of holding, but to type of distribution of controlling points. That was the mechanism—however refined, obscured, and varied—by which Mr. Morgan candidly stated to the Pujo Committee in 1913 that he was somehow in touch with capital more than a hundred times his own fortune.
With control go a varied series of corruptions, such as the purchase of supplies from subsidiary companies, owned entirely by the inside-control crowd, thus diminishing profits for shareholders by diverting them to the supply company; artificial depression of shares to get them cheap from discouraged stockholders; artificial stimulation of prices when they know things are doing badly but the shareholders do not as yet know this, etc. There is no need to add details: obviously control involves the possibilities of its abuse, and abuse, in economic language, is the transfer of money from outsiders to insiders.
Expropriation of Investors
Prior to 1929 the widespread ownership of stock was gazetted as a reply to those who stated that concentration was an injury to the middle class. It was alleged that the middle class had merely changed its vesture from independent capitalists to participants in aggregated capitals.3 The deflationary experience of the panic has somewhat modified this insistence. It matters little to the shareholder who bought Steels at 200 and was forced to sell at 80, that some millionaire could repurchase them at 25, and that they are again at 100. They are somebody else’s 100, and that is what matters.
These abuses have existed since the early days of merchant capital. Relative to the total capital of the country, the panic of the 1640’s in tulips in Holland, of the South Sea Bubble of 1721 in England, and of the crash of the Mississippi Company in France in 1729, were greater than any subsequent panic. But that is a superficial view. Now these abuses and crises lead to a different alignment of industrial capital with reference to labor; then they did not. The class content is wholly altered. Today every contradiction of constant and variable capital is promoted by financial panics. It is like comparing a broken wrist of a youth of twenty with that of a man of eighty.
The Transfer of Capitalist Management
What happens, though, is that the actual management of corporations is in the hands of employees, engineers, executives, usually high-salaried workers. The control of the company is increasingly exercised by men without a specific knowledge of the industry, not specially trained for it. Since bankers are powerful among such directors, and they usually know much more about chamber music and paintings than about crankshafts, the capitalist is rendering himself functionally superfluous. He knows an immense number of details about companies but only those which relate to their finances. He derives his physical knowledge of the company from its actual directing staff, who are usually not in control.
The State of Productive Forces, Competition, and Monopoly
Centralization of capital has so altered the economic body since Marx’s day that his anticipatory analysis of the effects of relative surplus-value appears almost skeletal compared to the fat his creation has since taken on. In 1875 the industrial machinery, in horsepower, was 300,000 in Great Britain, then the most developed capitalism for its population. In 1928 it was 37,000,000, or a hundred times as great as when the second edition of Capital was issued. France is supposed to be agricultural and conservative, but its horsepower in machinery rose from 20,000 to 18,500,000. Germany rose from 10,000 to 32,000,000, and the United States, the wonder of the world, from a mere 300,000 like England’s, to 162,000,000! For the whole world it rose from 650,000 to 390,000,000, or more than five hundred times in fifty years!
Robert Owen wrote in 1829 that his workers produced with 2,500 employees as much as 600,000 in the age of handicrafts (and he asked what had become of the difference, since they were poor). What would have been his commentary a hundred years later? England, which had been the very center of Marx’s analysis and had nearly 50 per cent of the world’s machinery when he wrote, even after her immense growth had but 9½ per cent in 1928.
The competition of nations had replaced England’s monopoly of manufacture for export. The age of peace and free trade gives way to the age of tariffs and war. It does not require a Marxian to ask, Why is anyone poor any more? Various as the answers are, Lenin has sought to integrate the Marxist one for this epoch.
Is Competition Superseded by Monopoly?
Since monopoly has made such great gains, what is the present operation of the laws of competition? Are they superseded? Is the Marxian theory of the need for capital expansion, so as to hold one’s own in competition, now annulled or weakened? Is the price determination of goods in free competition any longer a herald of crises? Do monopolies by regulating large internal areas of industry diminish crisis possibilities?
Competition governs all the more fiercely among the hundreds of thousands of small enterprises for they have so much less to divide. If 1 per cent of the corporations do 60 per cent of the business, then the competition for less than half the trade among the 99 per cent intensified all the laws of competition within that area of business.
Between the large corporations where there is no decisive monopoly, competition is carried on within the industry with a ruthlessness not rivaled since the Dutch and English East India companies slit the throats of each other’s agents. Wherever one industry is monopolized, as is aluminum, it conducts a vigorous price war against the metals it hopes to supersede.
New small capitals flow into new industries. Anyone who recalls the early days of radio and rayon, hardly a decade ago, knows what that means.4
The advertising war between brands of cigarettes and makes of automobiles is as vigorous as ever, although the contestants are fewer.
Where cartels, or closed trade agreements are formed, there is a jockeying for quotas within the agreement and economic force ultimately decides. Besides which, all trade agreements are “knifed” if the profits look more certain than the penalties. Carpet-sweepers still fight vacuum cleaners, although the companies that own the latter are colossi. So there is still intact every economic feature of competition.
Distortion of Competition in Monopoly Capitalism
The monopoly feature, though, does change some vital forms of competition. The monopolies raise prices so as to make their profit rise above the average. When the competing manufacturers, who have smaller capitals, have to come to any monopoly for their supplies, they pay a righer price than would obtain under competition, and so their costs are raised, but not their receipts, for those have to be based on competition. The smaller companies, thus, permanently, have a lower than average profit, the monopolies permanently a higher than average rate. Capital cannot move freely, as before, from $100,000 enterprises to $100,000,000 monopolies. The free flow of equalizing new capitals that once opened up the investment level is clogged. But big free capital tries to break into the profitable monopoly field where it too hopes to dictate to the smaller companies. The resulting titanic struggles among the large companies for control of an industry furnish fiction and motion-picture writers with plots on the “Octopus.” Economically they mean that competition is transferred to a struggle for an assured higher-than-average profit by the plutocrats, and for the lower-than-average residuum of profit by the smaller companies.
Since monopolies cannot annul the capitalist laws of competition, but rather intensify them, they are driven to winning by force. The devices are well known—selling goods for years below cost so as to kill a competitor, cutting off supplies of raw materials, secret rebates, closing of trade outlets, spreading rumors of insolvency, etc. But this is competition still from the economic, not the ethical point of view, except that it is more costly and more destructive. Force provides no escape from those laws.
International Monopoly Competition
When this struggle is transferred from the national to the international sphere, when German and British companies outscheme and outplot each other in China or South America, the competitive costs include the taxes required to maintain armed force as a backing to the respective claims of the competing monopolies. For there is no longer a question of free trade among a multitude of competitors, but of closed preserves for a few.
This means that competition is not reduced; it is transferred to a more advanced level. What is the characteristic of the new monopolistic competition, to employ what sounds like a contradiction?
(a) When a few powerful monopolies need either foreign raw materials or markets, and their failure to obtain this may mean collapse and with it national disaster, then the state becomes an appanage of the monopolies and sustains their pretensions with armed force. This adds to taxation and debt, which are now open competitive charges as against the implied charges of small competition.
(b) The monopolists seek to avoid this need by creating international cartels and trade agreements, but their inner, explosive needs for development cause them to jockey for more participations, and when this is impossible, to resort to force.
(c) The extreme diversity of political and social development between various countries and their uneven economic developments, results in disproportions in the competitive struggle and lead to an immense variety of competitive adaptations, almost as varied as those that obtained before between smaller companies within a narrower sphere, only these now are more explosive, since any solution in favor of one group of competitors results in too great a displacement to be easily borne.
The Effect of Monopoly Domination on the Purchase of Labor-Power
According to J. Kuczynski, the principal Marxian statistician, the situation of labor since monopoly capital has dominated, has been as follows:
For Great Britain, real wages (money wages divided by the cost of living) have fallen from an index of 99 (taking 1900 as a median date) to 93, taking the prosperous year 1928 as a median date. These express the central point of eight-year cycles of industry. There has been a real deterioration in workers’ conditions of 6 per cent in the era of monopoly domination. Relative wages—that is, wages compared to total production—have fallen from an index of 94 to 78 in that period.
For Germany the corresponding figures are: real wages have declined from 100 about 1900 to 77 for the cycle from 1924 to 1935. Relative to total production, they have fallen from about 100 to 44 in that same period. This absolute catastrophe may help to explain the throwing overboard of all liberal economics to produce “national unity” in order to head off a class antagonism that could not possibly endure. German industry has for fifty years been the most monopolistic in Europe.
For conservative France, largely agricultural and with an immense small professional, bureaucratic, and petty artisan class, net real wages declined from 109 in 1900 to 83 in 1935. But net real wages were really more erratic. In 1930 they were even 114 for a good year. For the twentieth century as a whole, on a cyclical basis, there is no marked decline. Relative data are unobtainable.5
Kuczynski’s interpretations, rather than his calculations, have been contested. They do indicate that monopoly is deleterious to the working class.6 (His figures will be reinterpreted later, for other purposes.)
The reasons for this bad result are usually the ability of monopolists to raise the prices of workers’ means of subsistence while they impose agreements among themselves to regulate labor conditions, to gazette blacklists of workers who oppose their policies, to sustain each other in strikes, and to maintain lockouts.
Where there is wide competition among smaller capitalists this is not so easy, as many of them would rather treat with labor and so for the moment produce goods while the competing shop is idle. But monopolies considerably reduce the strategic possibilities of labor for dividing the capitalists.
Monopolies and the General Crisis
It has been maintained (or was until the panic of 1907) that the age of monopolies, by smoothing out the disturbances due to competition, would put an end to crises or, at the worst, make them comparatively benign. According to Lenin the opposite is the truth. Monopolies intensify ordinary crises and finally bring about what he terms the general crisis of capitalism. On this point, especially, the Marxians have divided; the leaders of theory, especially, such as Kautsky and Hilferding, took a completely negative view. They insisted that capitalism is better organized due to monopolies and that eventually monopolies, by becoming gigantic, will almost approach a socialist organization of industry.
Crises are the method by which capitalism forcibly gets over its contradictions. If the thesis that monopoly reduces crises were to be maintained it could only be because it reduced contradictions. The contrary thesis of Lenin must be based on the notion that it increases them. All Marxians agree that a crisis resolves the contradictions in order to resume them more intensely, it never eliminates them.
How do capitalists get out of a crisis? They replace fixed capital by new and efficient plants, even if the older ones would do. These older plants would not produce cheaply enough and so they are scrapped. The world is full of ghost towns where once-prosperous industries have been abandoned.
They utilize new inventions that cut costs. They cut wages to the bone. These operations do not take place in the order named. As a matter of fact, a revival in the capital goods industries sometimes follows one in the consumption goods trades. But a revival in the manufacture of means of production is necessary before the new boom is in swing. The life of constant, or rather of fixed, capital, is shortened. In every crisis, the life of that fixed capital is shortened still more, since crises become more frequent and enduring. The renewal of plant investment during epochs of recovery being speeded up by the very intensity of each crisis, the flush on the cheek of capitalism is like that of the wasting consumptive.
Is this crude process of fixed-capital renewal really required by monopolies or can they overcome their difficulties by less costly means?
Theory that Monopolies Make Consumption Continuous
The argument for a lessened need for a crisis uses the uncontested fact that consumption industries rarely decline quite as much as means of production industries; and therefore, since monopolies make employment social and can maintain enormous numbers of workers without fear of dismissal (as was the case with the breakdown of millions of small businesses as a result of competition), that they reduce the possibilities of non-sales of consumption goods, which was the barrier that caused all the wooden soldiers of capitalism to fall back one on the other.
Now, says Kautsky, it is different. The millions of people employed by the trusts need not be discharged because of the blind overproduction for a market that was characteristic of a host of small producers. Trusts can plan, and so they do not overanticipate, nor do they have to revise their plans and dismiss workers because of overoptimism, thus engendering a crisis by breaking down purchasing power.
This is a reassertion of three ideas and, say the Leninists, a distortion of a fourth. The three ideas are:
(a) That the unplanned strivings of each individual capitalist for expansion are reduced by monopolies.
(b) That monopolies can equate their production, by proper forecasting, to possibilities, thus reducing the maladjustments of capital.
(c) That capitalism can thus obtain a profit, a surplus-value, and still be able to sell all it produces.
and the fourth, which is said to be distorted:
(d) That there is a minimum of goods that must be sold. People must eat to live. Whereas production goods can be dispensed with, as to new production, production for consumption goods must go on no matter what the condition of society. Hence the breakdown of consumption, which initiates a panic, can never be as great as the breakdown of production goods manufacture, and, therefore, once employment can be stabilized, thus being more susceptible to control, consumption goods can always be demanded at above a panic level. Thus panics can either be blunted or eliminated.
The Leninist Reply
The Leninist reply is as follows: Begin with consumption goods. It is the production relations of capitalism that determine employment and hence a slackening of demand for consumption goods. That is how the contradiction is manifested, but it is implicit in the needs of capital for endless extension, as otherwise relative surplus-value will decrease, and there is a limit to the expansion of absolute surplus-value, as hours cannot be indefinitely extended.
The minimum of consumption goods can never sink as far as the minimum production of production goods if zero is your limit. But zero is not in question. It is not what is the limit to which either can be driven, nor even the percentage of decline of one compared to the other. It is that the decline in consumption goods proceeds so far that the expansion of capital is arrested. Once that is done you have a panic.
Begin at the beginning. Is the need for the self-expansion of capital by an increase of relative surplus-value reduced by monopolies? If so, the need for crises is diminished. If not, the very bulk of the monopolies would make it all the worse, as also the absence of “spreading” among isolated producers (formerly some of them removed from the main currents of capitalism). For, in so far as there are feudal and artisanal survivals in capitalism, the ravages of its peculiar diseases are diminished for those small arcas.
But what are monopolies? They are an extension of the socialization of production of which capitalism itself is a specimen compared to feudalism or mere manufacture, or merchant capitalism. The socialization of production with private appropriation is what brought about the whole business of crises.
How can an intensification of that which led to crises lead to their suspension? If the dialectic answer is made that the increased quantity of centralization, by that very fact, changes its quality, then the test of how it changes quality must be made by a study of its specific products, socially.
Does it retain the reserve army of the unemployed? Even the apologists admit that on a secular basis permanent unemployment is on the increase. Then the monopolies must be producing relative surplus-value more intensely or this could not happen. They are forced to overcalculate the market, but with this difference: they overcalculate a world market where the more primitive capitalists overcalculated a local market. That is the characteristic of the age of imperialism, the identification of monopoly capital with banking and government. Any crisis, so conditioned, must be more widespread, not less.
As for the contention that consumption declines can be prevented from reducing production, the two most disastrous short-term drops in commodity prices within economic history took place in 1921 and 1929 at the apex of monopoly capitalism. It has every sign, then, of continuing the inner contradictions that led to crises and of making them more widespread and therefore more intense.
The Fusion of Industrial and Finance Monopoly
If the possibility of a crisis remains inherent in the monopoly system, that crisis must take on forms peculiar to the new stage of development. The specifically new features that determine this change of the crisis-form can be summed up as residing in the fusion of industrial monopolies and finance monopolies. This fusion is basically a new feature of capitalism, becoming significant in the 1890’s, dominant before the War, and far more aggravated since. It began, formally, in Germany, where the Bismarck government tried to develop industry at a pace that would duplicate Britain’s three hundred year development, in thirty years. For that the banks were used as long-term financing agents, with government inspiration and collaboration. The capitalistic development everywhere, even in England and America, led to the adoption of the German system, though with different arrangements, in accord with their laws and traditions.
Classical Banking
The ideal of banking in the days of unlimited competition was short-term financing. Any other was considered unsound, because the loans did not mature speedily, whereas the money on deposit was subject to immediate demand or, even in the case of special deposits, at very short notice. The only banks that were allowed to lend on mortgage, or other twenty-year tie-ups, were savings banks, which demanded the right to suspend payments for sixty days if there was a “run” or, as in France, mortgage banks who loaned at very long term and issued thereagainst long-term bonds. Insurance companies that pay out on a well calculated expectation of deaths, were the other long-term lenders.
Nor was this logic faulty. That banks which stimulate and keep the funds of commerce and industry should have these funds always available is a commercial necessity, and the only way to make sure that they remain liquid is to have self-liquidating loans. Hence the bill of lading was attached to a banker’s draft, for example, and when the goods covered by them arrived in London or New York, the banker had his money as soon as the draft was honored.
The discount system of the great banks (the Bank of England, Bank of France, and the Federal Reserve Bank of the United States) were based on this type of advance. The banker would give an importer or exporter credit for three months on self-liquidating collateral, at a discount of, say, 4 per cent per annum. He would then endorse the paper of the borrower and pay 3½ per cent to the central bank. The difference of ½ per cent per annum was his, without his having either engaged his funds or taken any real risk.
But his nominal liability was thought to entitle him to this payment, for there were times when the notes were not paid, when the merchandise covered by the bills of lading sank beneath the value of the loan within a short time, and the banker was out the money if the merchant could not make good. In the meantime all the commercial bills of the country had been turned into ready cash by the central banks, and so the system assisted commerce and kept money sound. Despite the twoscore bumps and dozen major disasters of capitalism, the British pound and the French franc were maintained at the same level on this basis from 1815 to 1914, the longest run paper money has ever had.7
Need for Less Fluid Banking Engagements
But this system of financing became antiquated as the development of capitalism required more fixed capital and relatively less circulating capital.
At first the banks formed financing syndicates and issued shares to the public through those syndicates to provide long-term financing. This was especially the province of the great private banks such as Rothschilds in Frankfurt and London, or Kuhn, Loeb and Co. in New York. These private banks still function but their role is quite different. For the subsidiary securities companies of the great public banks like the “Big Five” in London or the “Big Four” in Paris and Berlin, or such dinosaurs as the Chase and National City banks in New York, soon took up these functions. They had the great deposits of these industrial companies and it was natural for them to finance the companies.
Actually, their own advances, however disguised, were now made on a basis of constant renewals, so that in essence banking credit became more “frozen,” whatever the apparent maturity of the notes. The inevitable development of industry by way of the factors that compelled the capitalists to seek a higher relative surplus-value or go broke, mirrored the banks in the image of these industrial needs.
Medium-sized banks could no longer hope to compete, as they did when they, as well the the biggest, could instantly turn their paper into cash by rediscounting it with the central bank of the country. Now it required big money to finance industries for a long run. Finance companies took on immense liabilities when they issued shares or bonds, for the public might not buy them, and they would have to “nurse” them.
The concentration of banking capital proceeded at a pace that surpassed that of the industry it served. In England banks got down to five large ones and five others; the remainder were controlled by the five largest. Today these five banks have deposits of more than ten billion dollars, or about 90 per cent of all deposits in the country, and have scattered 11,000 branches in that little island. In Germany it was more pronounced: four banks had about 95 per cent of all deposits. In France, as always, the industrial system being more scattered, so was banking, but still the Big Four of Paris held over half the deposits.
In the United States a hybrid system came into being. Banks numbered in the tens of thousands (reduced to about 18,000 before 1929), but that apparent diffusion was merely the form of concentration. The dozen houses of issue, such as Morgan, Dillon Read, and a few large banks, about ten in New York, one in Boston, one in Pittsburgh, two in Philadelphia, one in Cleveland, three in Chicago, and two or three on the Pacific Coast, accounted for 99 per cent of financing of large public companies.
The Morgan interests controlled about a fourth of the industrial capital, and they and the Rockefeller, Mellon, duPont, and several other interests between them controlled nearly a half.
The fusion of industrial and finance monopoly, though, was never as complete as in England and Germany, because of the size of the country, its comparative diversity, its extremely different stages of development—some parts financial, others heavy industrial, others great farming empires, others on a semicolonial or semifeudal basis. The lack of “jell” in American economy reduced the totality of fusion, but still that fusion dominated easily four-fifths of the functioning industrial and financial capital of the country.
In France, where the fusion was not so complete, nevertheless two hundred families controlled everything important, domestic and foreign.8
Intense Use of Banking Capital
Most interesting of all was the “stretch” of banking deposits. In 1890, when British banks financed on a self-liquidating basis, deposits were six times the capital and reserves of the bankers. By 1932 they were sixteen times the bankers’ capital and reserves. The ratio of profit was greater, since profits arise from the loan of deposits, and the higher the ratio of deposits to capital the higher the rate of profit on the capital. In this way the banker compensated himself for the long-term tendency of money to get cheaper.
Besides this he now had a real money-making need for cheap money, unlike his father before him, who liked dear money. In 1931 the situation of the British banks was deplorable. Their loans to the continent of Europe were dubious and their commercial loans to colonial countries were imperiled by the catastrophic fall of raw material prices. The pound was devalued. That did not suffice. The rate of interest on government loans was lowered by the great conversion of 1932. At one blow, by devaluation, the banks reduced their liabilities, in gold, to their depositors, by over a third and, by making their bonds worth the difference between a capitalization at 5 per cent and one at 3½ per cent, they became solvent.
That is, a 3½ per cent annuity is worth only 70 when money is 5 per cent, but 100 when money is worth merely 3½ per cent. Their commitments in bonds and fixed investments were so much greater than in liquid investments that they clamored for cheaper money and got it, and even got economic philosophers like J. M. Keynes to prove that this is the permanent method by which countries can be made rich, the Ponce de Leon fountain of youth of banking.
Interlocking Directorates
The proof that they are no longer banks in the classic sense is that the directors of the big five banks of England, between them, held 1,275 industrial directorates besides. The fusion of banking and industrial monopoly was fully accomplished.
In the United States interlocking directorates were nearly as complete. One financier, the late Charles Hayden, directed everything except the planetary systems.9 His assumed all-embracing knowledge of a hundred industries makes him the peer of that English scholar of whom it was said that “omniscience was his foible.”
The lesson of all this, say the Leninists, is plain. Since all capital and finance are fused, the avenues of escape are diminished. They all go together on the upcurve and they all go together on the toboggan. Crises are not provided with safety devices.
All the companies that count are quoted on one stock exchange. All the banks are based on the same types of investment and they are all tied up. When values crack, their solvency goes.
The old-fashioned banker regarded panics as a godsend. The fools had speculated; he had kept his money in liquid commercial paper; now he could use the differences in his pocket, his hard cash, to acquire factories and railroads on the cheap. Not so the new banker (except as to shiftings of interests within the set-up). Identified with industry, there was no other sphere of capitalism to look to as a fire escape. The spheres of production and circulation are one. The bankers now become as jittery on values as the stock-exchange gambler.
Government Is Intertwined with Monopoly
Since there is no escape within the capitalist system, the banker no longer demands that the government stay out of business. He still denounces its interference with him, but he welcomes its collaboration in disaster. From now on the state has a new function. The banker is a cat. He insists that the government feed him liver and milk when he is hungry, but that he can miaow at it as soon as he is full.
The government becomes his partner in adversity, but it is to take its hands off as soon as “confidence” is restored (with the government’s advances). It must refloat business and then leave it to its own devices.
In some countries like England, and above all Germany, this is now the established form of government. In America the resistance of the smaller businessmen, the middle classes, and the unions, has prevented this situation from becoming the economic-political form, although some features of it do exist.
Hence the net result of the fusion of monopoly finance and monopoly industry is a new stage of capitalism, imperialism—that is, the use of the government’s resources and foreign colonial policy, to assure the solvency of the finance oligarchy.
They can use no other means to get out of crises: the self-remedying features of production at lower costs and of lower prices, although still the basis of any recovery, are no longer, due to the present inelasticity, quite enough. The alleged conflict of industry and finance, once real, is now true only of that section of industry, still large but not dominant, that minds its own business. But though these capitalists are still important, they do not set the “tone” of industrial upswing and crash.
Stock exchange brokers and gamblers are mostly outside the fusion, but their role is shrinking daily. In Europe they mostly execute orders for the great banks and insurance companies; their independent customers are lessening. In America the diminishing liquid resources of the middle classes means that there is a diminishing function for the stock exchange, since there is less to transfer from the smaller pockets to the larger by means of tempting the middle class to attain fortune by forecasting the future of values.10
To summarize: The Leninist’s view is that monopoly increases the competitive dangers that lead to crises, and that the identification of this monopoly with finance and banking means that the crises of the future, by reason of the fusion of production and circulation, will be deeper and harder to get over than ever before. This leads directly to the celebrated theory of the General Crisis, that is, an epoch for which crisis is normal, and where it is no longer merely the method by which the contradictions of capital are forcibly resolved on a higher level. Crisis now changes its nature. Within the General Crisis, there are cyclical crises, but their function is wholly altered. That total thesis requires, though, a study of more than mere finance imperialism to sustain its pretensions.
The Export of Capital
Until the present juncture, we have assumed that goods are exported abroad and capital reinvested to produce those very goods at home. Now this has never been wholly true. Capital was exported in trickles as early as the seventeenth century by the Dutch, and part of the plunder of the Indies and the slave trade found its way back in the eighteenth. But it was not until after Waterloo that the revolt of the South American colonies against Spain opened up a group of so-called independent, feudally organized, poor governments, which were to become financial colonies instead of being formally annexed. Houses of issue in Amsterdam and London placed these government bond issues with the rich manufacturers of Holland and England, and the export of capital commenced on a serious scale. But it was so subsidiary that as late as 1850 men like Bright, Cobden, Mill, Cornewall Lewis, and other great English statesmen thought that colonies were a nuisance, and the export of capital with its chronic defaults, a delusion and a snare.
It was not until the American railroads produced fortunes for English investors that the tide turned. By 1860 the colonial and capital export policies of England became important, apart from the plunder of the colonies. They were to be sources of investment as well. The immense development of the United States, mostly on the basis of Dutch, British, and some French capital, for a decade took up the spare capital that Europe could not employ at home.
But in the 1870’s the imagination of capitalists was fired by the cheap wheat of the Mississippi Valley, the Suez Canal, the interminable pasture lands of the Rio de la Plata. Profits were higher than at home. The stream of capital thickened.
By 1880, the investments of European nations abroad were 5 billion dollars, by 1890, 10 billions, and then came the flood. By 1914 they were in excess of 44 billion dollars, and even the United States, their then debtor, had 2 billions abroad.
By 1900 the proportions of profit, or net income, from the exports of goods and the profits from the export of capital had changed the financial emphasis of many countries. England’s net profit from foreign trade by 1895 was $100,000,000 a year and her income from capital abroad was $500,000,000.11 The whole of Western Europe, Belgium, Holland, Switzerland, France, were in the same category, and even industrial Germany, though not so overbalanced, still was assuming similar features. The United States, which owed money on balance at the outset of the Great War, had a foreign capital income twice as great as its trade income from abroad, by 1928.
In this way capital had escaped partly from its dilemma of overexpanding capital at home in proportion to consumption growth. It transferred part of that surplus capital, whose yield at home was small and whose scope was circumscribed, to the colonial or primitive or underdeveloped lands where the rate of profit was higher.
Even on secured loans, the rate of interest on foreign bonds was from 1½ to 2 per cent greater than on domestic securities. But the bonds were nothing compared to the infinite returns on the gold and diamond mines of South Africa,the public utilities undertakings and railroads in the Argentine or Egypt.
Thus capitalism escaped strangulation from its own contradictions. It took care at first (in the primitive lands), to develop agriculture and mines and transportation and some light local-consumption industries, but it never developed factories for manufacturing the means of production (either machines or heavy industry) in the colonial countries.
Later on it had to permit some of this, but it always held the reins of productive power at the source, in the home country that exported the capital.
Vital Results of Capital Export
The lands to which capital was exported became primarily sources of cheap raw materials, through this stimulation of capital, and thus not only provided the domestic capitalist an income from investment but cut his raw material costs as well, and so increased his profits. It also created new markets for products, thus overriding the limitations of consumption at home. The export of capital fed the export of goods, but the emphasis remained with the export of capital, for it was the cause of this trade feature.
It was not so much a question of the proportion of business in the capital export lands to those near by. The trade of every European country with its near neighbors far exceeded (in money) the trade with the capital importing countries. But it was the profitability and the use of that market as the special solvent for home difficulties that made it invaluable. It had a quality as well as a quantity of profit that was needed.
It did not matter for certain purposes whether these countries were made political colonies or not. But for others it did. The Argentine was effectively a British colony like South Africa. But there was a sureness in controlling sources of raw material and closed markets (if it became necessary to close these) that political control alone could give. Here too calculation is not the surest guide to analysis.
At any rate, the colonial domain of the great capitalist states increased from 3 million square miles and 148 million inhabitants in 1860 to 20 million square miles and 600 million people by 1914. If one adds the colonial conquests of Russia the figures come to over 22 million square miles, or more than two-fifths of the globe. The so-called independent countries, South America and China, conserved a fragile political independence but were financial and commercial colonies.
Expressions of International Monopoly Rivalries
The effect of the export of capital, coupled with the fusion of industrial and banking monopoly, means that the financial oligarchy at home is identified vitally with this outlet for capital abroad, with the control of raw materials and of subsidiary markets. Hence the struggle for these advantages, at first expressed by unstable international “cartels” and later more by unrestricted competition, when the agreements break down, can end only in wars.
Armaments Are a Basic Industry
To equip the state to defend monopoly interests, a new set of industries and activities become significant, and later even primary. These are the military and armament trades and professions. Designed to serve the interests of the finance oligarchy abroad, to protect their capital and the markets for goods that have become but a function of those investments, and the raw materials that would be imperiled by a loss of that capital, and driven by the ever greater need to overcome the capital-consumption contradiction at home, these military forces take on an independent life in the economic system. Their great importance begins with the imperialist age.12
By 1900 the cost of armies and navies and the interest on war debts reached 7 billion dollars a year. By 1914 they were about 13 billions. In 1939 there is no longer any use in citing “figures.”
For Germany and Japan, the production of war materials has become so important a part of their economy that it is unthinkable how it can ever stop, unless it is successful in obtaining for them a profitable set of new countries that will yield actual capitalistic income. But to do that requires a major war, and that in turn is so costly that it is doubtful if it will not lead to capital-consumption contradictions too deep to be resolved within the system.
Italy is nearly as completely governed by armaments, and it is no secret that in England armaments are expected to be the balance wheel of industry from now on, if not, indeed, its motor. That so large a section of capital provides no new means of exploitation but, from the standpoint of the creation of future surplus-value might better be thrown into the sea, marks the end of a cycle. For now, crises are world-wide, monopoly makes them deeper, the state is their only surcease, she is armed to the teeth, that armament becomes larger than the quantity (not significance) of the interests it defends, and this defense provides for no further surplus-value to replace the surplus-value it protects. Hence the general crisis is manifested, that is, an epoch in which the restoration of surplus-value by the ordinary mechanisms of capital is no longer possible. The crisis overlays industry, although within it there are upsurges and declines, but they take on a character special to this era.
NOTE: The crisis of 1929-33, is, for the Marxists of the Leninist school, a confirmation of the foregoing scheme. Capitalism no longer has Russia to hope for as an area of exploitation, because of the proletarian revolution in that 16 per cent of the earth. The upsurge in the colonies, such as India (the most profitable of all Europe’s possessions) and the disorders in China, considerably reduce the possibilities of capital export. Thus over 900 million persons are either excluded or diminished as subjects for new exploitation in territories in which capitalism can extend its operations so as to blunt its contradictions in the home country. The example of these colonial or proletarian resistances, once they are well established, will imperil the entire area of the export of capital, with the possible exception of that to Latin America by the United States.
Constant capital is so gigantic compared to variable that unemployment is now universal, reaching the tens of millions and never really solved except by charity or slavery. This produces no surplus-value in the capitalist sense, in any event.
Whole sections of the productive apparatus are unused for long periods; there is a chronic oversupply of fixed capital. It is not eliminated by each upsurge, it remains an overplus, though not so much as at the bottom of the crisis.
But capitalism does not go on to a much higher level of production than the former prosperity. It may equal or slightly surpass its former level, but it can never, any more, lead to a new world-wide boom. Any boom possibilities are now due either to special features or would be confined for a very short time to only a few countries. The old rhythm of each crisis leading to the same contradictions but on a much higher level is not met with.13
Even in the boom of 1923-29 in the United States the number of men employed in industry itself did not increase. The farming crisis reacts on the industrial. In America the farmers became steadily poorer throughout the industrial boom to 1929. Thousands of banks failed in rural areas. The price of land declined. Raw material prices failed to keep pace with those of manufactured goods. The “scissors” widened, that is, the difference between what the farmer gets for his crops and pays for his needs. In some countries agriculture enters into secular decline (India, China, etc.). The farmers can no longer pay $2,500,000,000 per annum to finance oligarchy and parasitic rentiers of Europe and Wall Street.
Now the dire day prophesied by Engels has come. Capital, real capital, no longer expands, or rather, hardly expands. Irregular development becomes the rule in this state of affairs. During a boom whole countries are depressed as are whole industries and agriculture. A general upsurge never exists. Even in the American industrial boom of the twenties, the percentual gains in production were the smallest ever known per annum in any previous upward section of a cycle.
The 1929 crisis was more prolonged than any other, considering the damage done during its five years. Its scope was wider than that of any other; its production and employment decline made all other crises dwarfish by comparison; and, above all, monopoly interfered with price adjustments downward, by which “normality” was formerly restored. Finished goods maintained their prices more than intermediate goods, and means of subsistence went down less than colonial raw materials.14 Monopoly goods declined less in price than competitive goods.
Stock exchange values had never previously fallen so low. The American index fell from 383 to 41. Money collapsed; not one currency survived. Dollar, pound, all went down 40 per cent or more. The new issue of capital, the lifeblood of capitalism, has almost ceased and foreign lending has ceased. Not even recovery has helped this vital phase of capitalism to be resumed in anything but the most restricted quantity.
In no crisis, too, has the real wage of the working class been so slashed. The contradiction between the consumption growth and that of capital is altered, for now it is rather that the workers’ consumption is cut by low wages and unemployment and capital does not add to its capacity for extracting relative surplus-value, its saturation with constant capital being permanent. (It extracts that surplus-value more primitively.)
While the Leninists do not pretend that this is a complete picture of the general crisis, they hold that capital always has an “out,” which “out” will be a war for the redivision of the world. For that reason they say that the so-called autarchy and nationalism of the present crisis is merely an organization of each finance-oligarchy to restrict its international interests so as to build up armaments and finds its escape in the classic manner of obtaining new areas and populations for exploitation. It is a retreat made to effect a sortie.
It is impossible to follow the numerous detailed theories of the mechanism of the crisis and the “special recovery” from it, all within the general crisis. The leading systematizer of this approach is Varga, formerly of Budapest, now of Moscow. On the tripod of the chronic surplus of fixed capital, of the agrarian difficulties, and of mass unemployment, he features devaluation as a new quality, government aid, etc. He also stresses the lessening gains due to “rationalization.”15
In the study of crises, we have not dealt with the size of inventories, as these are derivative from the contradiction of capital growth and lesser consumptive possibilities. It is true, though, that in 1932 the depth of the crisis showed the largest inventory index in history and led to the destruction of coffee, etc., to sustain prices and to a multitude of schemes for restricting copper, tin, rubber, and even grain crops. The destruction of wealth was urged as a remedy for the crisis.
The General Crisis epoch, according to this analysis, results in a double feature: countries become more like each other owing to industrial development, and more unlike each other in the scope and direction of this development. Contradictions grow thick; in order to protect the now immense investments in fixed plant and machines, inventions are scrapped, yet certain sections of industry are equipped to go ahead rapidly; there is a tendency to stagnation in production gains as a whole, but not in decisive sections in which the capitalists see some possible issue to the central difficulties that arise from that general stagnation.
Capitalism develops large parasitic groups of investors—“the idle rich”—and yet shakes them off like snow from a bough, by devaluation, or capital restrictions, or panic destruction of stock exchange quotations, when they cost the finance oligarchy more than it is worth to nurse them.
We are now at the stage where, as Engels stated, the contradictions between social production and capitalist appropriation—the mode of production rebelling against the mode of exchange, the sharpened class contradictions—are chronic.
At this point political economy comes to its limits. For Marx the economic science with which we are concerned deals with capitalism. If, as the Leninists assert, the present position of capitalism makes its very survival in large parts of the world dubious, a wider study is required than political economy itself.
NOTES on Marxian Theory as Applied to the General Crisis:
The following interesting Marxist adaptations attempt to deal with the current economic situation. They are essays, not dogmas.
It is held that the refusal to renew fixed capital on anything like the former basis permanently lowers the rate of profit (not that of surplus-value) and so the monopolists prevent new small capital from competing because the reward is not sufficiently great. The tendency for small money is to flow into government bonds, etc., that is, to be increasingly dependent on production at secondhand.
The increasing diffusion of technical improvement from the older industrial countries to others, formally looks like a more even development, but actually it intensifies needs for markets, etc., and thus increases the unevenness of national developments, since their needs are more than ever disproportionate to their possibilities against the older industrial-finance-imperialist states.
The depth of the last crisis being qualitatively different from any previous one, because the intensity was so great as to alter the social character of the consequences, resulted in a schism of the governing class themselves. The monopoly capitalists, who refuse to follow the older flexible methods of ending a crisis, become chauvinistic and reactionary, and organize political dictatorships to counter not merely the working class, but to eliminate the smaller capitalists by force. This is done by utilizing all the noneconomic heritage, such as nationalism. This is objectively a vindication of Marxian prophecy, since it reduces the exploiters to a mere handful and, ultimately, diminishes class divisions among the other people. The economic basis is their monopoly of surplus-value. As this monopoly means that the reproduction of capital is no longer possible in a closed capitalist economy, as a long-term realization, they seek war or its equivalent, a gain of markets and resources by the threat of war.
The social legislation and accompanying unionization of workers means that the industrial reserve army may be stripped of its historic function as the cause of lower wages. When the next cyclical crisis occurs, then the remedy cannot be lower wages, for the provision of relief, etc., will reduce the capacity to extract surplus-value. This scissors of no reduction of wages and the increasing levy on profits for relief, by way of high corporate taxation, may create a new balance of class forces. Thus it would be shown that the “system” of Marx was a description of the laws of a specific relation of classes, and is modifiable by class action. Marx emphasized the means of subsistence theory because thereby the mobility of class relations could be effected.
Imperialism is not fixed in its movements. For example, in 1931 England by devaluation preferred to use her position as a buyer to blackmail the raw material countries, because they either would sell to her (she buys a sixth of the world’s goods) or go into still greater economic misery. That is, England dried up the sources of dividends and interest in order to obtain a gift from primitive countries towards her domestic recovery. Then the capitalists, stimulating a world recovery, somewhat increased the income-remitting capacity of the colonies and dependent states.
Figures are increasingly unilluminating on finance imperialism. In 1914 France had 8.7 billion gold dollars abroad. She lost a third by war and repudiation. But today she has 4 billions or more abroad at short-term. Has her long-term loss been really as significant as her strategic gains in short-term irruption into other financial systems? This movement of “hot money” from one country to another is a great weapon of capitalist competition, for it makes all currency situations consistently unstable. These new predatory moves, within the system, have developed since Lenin’s analysis of France as merely the “usurer state.”
The export of capital has gone down considerably since the war and almost totally in the 1930’s. Receipts of income and dividends from abroad have suffered considerably. Stock exchange collapses have also clipped the parasitic incomes. It is clear then that Lenin’s analysis of growing parasitism must be translated as the last great channeling of middle-class survival wealth into the service of monopoly capitalism. When this is completed, then its appropriation is the order of the day.
Dumping is increasingly used to dispose of goods abroad without allowing of increased wages at home. So long as the home situation can thus be kept profitable the loss abroad is merely a necessary charge to permit the fundamental relation at home to continue. This is the reverse of the underconsumptionist theory of Sismondi or Luxemburg. For here reproduction on a home basis is the object, dumping abroad not a means of realizing surplus-value but of paying for its realization at home. (This is advanced in Anna Rochester’s study of American finance; it is ingenious and opens more issues than it closes.)
Giant armaments are declared to be a function of the second stage of monopoly capitalism, since previously small armaments could subdue primitive peoples, as in the first stage of imperialism, but now the struggle of the monopolies to divide each other’s spoils requires large armies for the contest. Hence large armies, etc., are a direct secondary cost of monopoly capitalism.
This theory is plausible but somewhat too cut and dried. The armament burden of Europe has been increasingly grievous in the last eighty years. From the Crimean War on (1854) the competitive costs of rearmament have advanced. Imperialism was only one reason; the need to acquire resources in Europe (as the Lorraine iron area in 1870) and to control an increasingly urban and industrial population at home were important factors too. But the theory of the second stage of monopoly capitalism is the only one that explains the substitution of military production as a basis as against production ultimately aimed at consumers’ goods.
1. The epigram of Disraeli, “England without India is Belgium afloat,” was not so true after the latter absorbed the Congo.
2. Since 1929, like Owen Glendower, it can call, but who will answer?
3. They changed their vesture but they lost their shirt.
4. The new industries show a mortality rate greater than others. Larger capitalists prefer to have hundreds of small concerns ruin each other, and develop demand and technique, after which they enter.
5. These calculations have not yet been made for the U.S.A., although the material is available.
6. J. Kuczynski, Labor Conditions in Western Europe (International Publishers, New York, 1937).
7. The dollar, fixed in 1836, suffered more, mostly on account of the Civil War. But it came back to the 1836 level until 1933.
8. The most perfect study made for any country of the personal character of the industrial-finance oligarchy, including their daughters’ dowries, is A. Hamon’s Les Maitres de la France (Paris, 1936-1939, 4 volumes).
9. These he covered in his gift to the Planetarium in New York.
10. The stock exchange, like an old wanton, is growing virtuous as its opportunities diminish.
11. In our day the figures are for foreign trade $500,000,000, for income from capital abroad $2,100,000,000.
12. This is not, of course, a complete social description. The rise of the national state and of mass armies after the French Revolution made the mold for this new monopolist military form.
13. Rather the contradictions remain during the recovery, but are kept from manifesting themselves by maneuvers; so much the worse the situation when they must emerge once more!
14. The decline in international trade, both in volume and price, was so much more than in any previous crisis that we must look on it no longer as comparable, but as having a wholly new significance.
15. Varga, The Great Crisis (International Publishers, New York. 1935).